Jadespring Ltd v. Rise Top Asset Management Ltd and Another

HCA 2039/2023
HCA 2040/2023
[2025] HKCFI 2310
(Heard together)

HCA 2039/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2039 OF 2023

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BETWEEN

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AND

HCA 2040/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2040 OF 2023

_______________________

BETWEEN

_______________________

(Heard together)

_____________________

D E C I S I O N

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Introduction

1.At all material times, the Plaintiff (“P”) is and was the registered owner and landlord of the premises known as House A and House B of The Mount Austin, No. 8 Mount Austin Road, The Peak (“House A”) and (“House B”). In these Actions, P claims against the 1^st Defendant (“D1”) as the tenant and the 2^nd Defendant (“D2”) as the guarantor for (i) the rent and fees etc. in arrears (“the rent arrears”); and (ii) damages for breach of the tenancy agreements both dated 15 October 2020 (collectively as “the TAs”).

2.By two summonses both dated 31 July 2024 and supported by affirmations filed with the Court, P applied for summary judgment in respect of only part of its claims (i.e. the rent arrears). The Defendants (“Ds”) did not file any affirmation or evidence in opposition to the summonses.

3.On 26 August 2024, Master M. Lam heard the summonses and granted summary judgment for the rent arrears as sought by P together with interest, but ordered that execution of the summary judgment be stayed until the final disposal of the remaining parts of P’s claim (i.e. damages for D1’s breaches of the TAs) and D1’s counterclaim (“Stay Order”); and costs of and occasioned by the summonses be paid to P in any event, to be taxed if not agreed.

4.By two Notices of Appeal both dated 3 September 2024, P brought these appeals in which P seeks to set aside the Stay Order made by the Master. It is contended that P is indisputably owed unpaid rent and it should not be deprived of the fruits of the summary judgment merely because D1’s counterclaim (which is unarguable, and not supported by evidence) has not yet been determined.

5.On 28 November 2024, a hearing of the appeals was held by this Court. At the hearing, Ds confirmed that they no longer relied on their counterclaim to resist P’s appeals against the Stay Order and therefore the basis of the Master in making the Stay Order was no longer maintained by Ds. Instead, they argued that an appeal against a Master’s decision to a Judge proceeds by way of a re-hearing de novo of the application which led to the decision under appeal. Therefore, they contended that new points may be taken on appeal which were not canvassed before the Master. At the appeal hearing, they contended that P has no locus standi to sue and hence, there is a triable defence. They contended that for that reason, the summary judgment should be set aside and as a result, the Stay Order would no longer be required. They also asked for costs of the appeals and of the hearing below.

6.It is clear from the transcript of the hearing that the issue of locus standi was never raised before the Master, not in writing nor orally; indeed, it was repeatedly conceded on behalf of Ds at the hearing that there was no defence for the rent arrears other than D1’s counterclaim. This challenge as to locus was only raised at the appellate stage by Ds for the first time in their written submissions which were filed three days before the appeal hearing and after P had filed its written submissions.

7.At the appeal hearing, Counsel for Ds, Mr. Leung, confirmed that summary judgment should be granted in respect of the rent arrears if Ds fail in raising the locus challenge. As this locus challenge was not sufficiently dealt with in the written submissions filed with the Court, having heard the oral submissions by counsel for the parties, the Court directed the parties to produce and file their Consolidated Submissions in writing, and the Court’s decision on the appeals was reserved. The parties filed their Consolidated Submissions as directed. This is now the Court’s decision on the appeals.

The Defendants’ undisputed defaults

8.D1 started to delay or default its payment for rent under the TAs from January 2023 for House B, and from February 2023 for House A. D1 ceased entirely to pay rent from April 2023 for House B and from July 2023 for House A. On 21 August 2023, P was informed by a representative of D1 that D1 would not return to House B. On 13 January 2024, D1 vacated House A with the door of the premises open. On the same day, P regained possession of House A and House B, accepted D1’s repudiation of the TAs and terminated the TAs. The net outstanding rent, interest, management fees, and government rent and rates payable by Ds to P, less the deposits paid, totalled HK$2,604,617.30 and HK$5,033,463 respectively under each of the TAs. These were the sums in respect of which summary judgment was granted by the Master, together with interest to be calculated from 14 January 2024 until the date of full payment.

Evidence before the Court

9.On the face of it, P’s application for summary judgment in respect of the rent arrears was well supported by P’s pleading and the affirmations filed by P which were placed before the Master. On the other hand, Ds filed no evidence to oppose the application. In view of P’s pleading and the supporting affirmations, P was prima facie entitled to summary judgment. When there was no opposing evidence from Ds, it was not surprising that on 26 August 2024, the Master granted summary judgment for the rent arrears as claimed by P together with interest and costs.

10.Even when the matter proceeded to the appellate stage, there was no evidence from Ds to support their own case or to resist the appeals by P.

The locus challenge?

11.There is no dispute that the locus challenge was only raised for the first time by Ds three days before the appeal hearing in their written submissions. Are they entitled to do so at this stage of the proceedings? It is their contention that they may bring any new point on appeal which is to be held by way of a hearing de novo.

12.The locus challenge is said to be based on the following facts which are not in dispute. On 2 August 2010, P had mortgaged (“the Mortgage”) the Lot of land known as No. 8 Mount Austin Road (“the Lot”), which includes House A and House B in these Actions, to the Dah Sing Bank Limited (“the Bank”). On 2 August 2013, P as assignor further entered into a rental assignment (“the Rental Assignment”) with the Bank to assign to the Bank absolutely all of P’s rights, title, interest and benefit to and in any moneys whatsoever payable to the assignor (i.e. P) by present and future lessees of the Lot (including but not limited to deposits and rent). In its affirmations filed with the Court, both the Mortgage and the Rental Assignment were exhibited and P confirmed that since the Rental Assignment was entered into, P has always maintained an account with the Bank for the purpose of depositing all deposits, rental income, management fees and other income received by P from the lessees, in P’s capacity as owner or lessor under the terms of the respective lease (including the TAs).

13.It is Ds’ contention that their argument as to P’s lack of locus has been raised in time as early as in their Defence and Counterclaim dated 24 June 2024 (“D&C”). I have carefully considered the pleading in the D&C, and in particular, those parts that Ds relied on to support their contention. In my view, whilst both the Mortgage and the Rental Assignment were referred to in the D&C, they were only pleaded to raise Ds’ challenge against P’s capacity to enter into the TAs. The following parts of the D&C are instructive:

(1) The heading at Part A, i.e. before §2 where references to the Mortgage and the Rental Assignment were made, was: “If the Plaintiff has no capacity to enter into the Tenancy Agreement”.

(2) In §2.2, it was pleaded: “The Plaintiff has covenanted with the Mortgagee that … the Plaintiff will not without the written consent of the Mortgagee cause or permit any lease tenancy … to be effected …”

(3) In §3, it was pleaded: “Based on the matters averred in paragraphs in 2.1-2.2 above, unless the Plaintiff has obtained written consent from the Mortgagee, the [P]laintiff has no capacity to enter into a tenancy agreement with the 1^st Defendant…”

(4) §5 also pleaded: “In the event that the Court held that the Plaintiff has not obtained the requisite consent or otherwise had no capacity to enter into any tenancy agreement with the 1^st Defendant… Paragraphs 3-33 is denied by reason of the Plaintiff’s lack of capacity to enter into the Tenancy Agreement and the Plaintiff is not entitled to any damages whatsoever.”

(5) The heading at Part B was: “If the Plaintiff has the capacity to enter into the Tenancy Agreement”.

14.It is remarkable that in P’s affirmations which were filed with the Court to support the application for summary judgment, the deponent gave evidence to refute this issue of lack of capacity to enter into the TAs. That was certainly perceived by P to be the issue that P had to address. It is also apparent that because of this evidence by the deponent, at the hearing before the Master, it was conceded on Ds’ behalf that there was no defence to the claim of rent arrears.

15.As Yuen JA (as she then was) explained in Mui So Bing v Wan Chi Shing [2020] 1 HKC 85 at §23.1:[1]

“[T]he notion that a legally qualified pleader may plead only the facts, (or plead the facts with a specific legal consequence), leaving his opponent and the court to have to second-guess what legal consequence (or what other legal consequences) he may choose to argue at trial or on appeal, is in my view inimical to the underlying objectives of the Civil Justice Reform. These objectives include ensuring that a case is dealt with as expeditiously as is reasonably practicable, to promote a sense of procedural economy in the conduct of proceedings, and most importantly, to ensure fairness between the parties.”

16.Having considered the D&C as a whole, I take the view that locus standi was never raised nor pleaded as an issue by Ds. It appears to me to be an afterthought engaged only at the appellate stage as an attempt to resist the appeals.

17.As contended by Counsel for P, Ms Astina Au, the belated challenge to P’s locus at the eleventh hour was effectively ambush by Ds. The issue was only raised almost a year after the Writ of Summons was served and Ds has had multiple opportunities to put up the challenge but failed to do so (including responding to the Writ of Summons and the Statement of Claim, to the O.14 summonses, at the hearing of the summonses, and to the Notices of Appeal). As Ms Au maintained, if there is an issue about locus, it should be raised “at the earliest opportunity” as established by the authorities.[2]

18.Had the issue of locus been properly raised or pleaded in the D&C, P would have been alerted to the challenge and would have taken steps to properly deal with it in a reply, if appropriate. Further, P would also have had the opportunity to deal with the issue in its affirmations filed in support of the application for summary judgment. In my view, it would be quite unfair to permit Ds to raise the locus issue now on appeal to challenge P’s claim for rent arrears, unless P is given a proper opportunity to deal with it.

19.Counsel for Ds, Mr. Leung, also contended that in a summary judgment application, the burden rests squarely on P alone to properly constitute its claims, which includes establishing that it has the necessary locus to bring proceedings. Ds are entitled to rely on P’s failure to satisfy its burden of proving the same to oppose its summary judgment application on the “or otherwise” limb of the Rules of High Court (“RHC”) Order 14 rule 4(1), which provides:-

“A defendant may show cause against an application under rule 1 by affidavit or otherwise to the satisfaction of the Court.”

20.Ds contended that a defendant may succeed in opposing the Order 14 application where it can be shown on the face of the Statement of Claim itself that there is no cause of action, or the pleading simply fails to set out the necessary ingredients of the cause of action.[3] In an unusual situation, a defendant may also succeed if he is able to raise a triable issue with reference to the plaintiff’s pleading and affirmation alone, without any need to put in evidence to substantiate any of his allegations.[4]

21.Ds also referred to a decision on costs of Deputy High Court Judge A. Chow SC (as he then was) in Simba-Toys (Hong Kong) Ltd. v Fullmore Corporation Ltd., HCA 1599/2008, unreported and dated 5 March 2009, where the Court ordered costs to the defendants upon dismissal of the plaintiff’s summary judgment application on the ground that the plaintiff had no locus standi to sue even though that was not a contention relied on by the defendant in that case:-

“5. I accept that Order 14 Rule 7 of the Rules of the High Court does not apply to the present case. However, I do not believe that the court has no power to dismiss an Order 14 application where it is plain that the plaintiff has no locus to sue (as I believe it to be the case here). The fact of the matter is that the Plaintiff has no cause of action against the Defendant in this action.

6. It is correct that the issue of locus standi was never raised by the Defendant. However, I consider that, prima facie, the duty was on the Plaintiff to ensure that it had proper standing to sue before it made an application for summary judgment against the Defendant. In all the circumstances, I am not persuaded that the costs order nisi should be varied as sought by the Plaintiff.” (Emphasis underlined)

22.But that was a case where it was plain that the plaintiff had no locus to sue. Indeed, in that case, at the hearing of the summary judgment application, counsel for the plaintiff could not answer the Court’s query as to its standing to sue:[5]

“14. When the question was raised as to whether the Plaintiff had locus to bring this action in its own name without any assignment of the underlying cause of action, Mr Shaw frankly admitted that he could not think of any basis to contend that the Plaintiff was entitled to sue in this manner.

15. In the aforesaid circumstances, I do not see that it would be proper for the court to enter judgment in the Plaintiff’s favour under Order 14 or Order 27 Rule 3, even if the evidence before the court would otherwise justify giving judgment for the Plaintiff on either basis….”

23.Ds contended that irrespective of any triable issues or arguable defences that a defendant may raise, if there are inherent concerns in respect of the plaintiff’s own case sufficient to demonstrate that the plaintiff’s case itself is unfit for any Order 14 application, such application is liable to be dismissed with costs.[6]

24.In the Court’s assessment, however, it is simply not plain as contended by Ds that P has no locus to sue. Indeed, the Court finds the contrary to be true. P was the registered owner and landlord of House A and House B and it had signed the TAs with D1. Even though P had entered into the Rental Assignment with the Bank, there is a covenant in the Rental Assignment, namely clause 5.1(b)(3), which expressly provides that P “shall promptly and diligently … institute and maintain all such proceedings as may be necessary or expedient to preserve and protect the interests of the Assignor [i.e. P] and the Bank in the Lease [i.e. the TAs]”. I observe that this covenant is drafted in wide terms and in my view, it clearly envisages and indeed authorizes P to institute proceedings to sue for rent arrears to protect not only the interests of the Bank but also that of the “Assignor” (i.e. P) in the “Lease”. What else would be the most obvious interests of the Bank or P to protect in a “Lease” if not the rent arrears?

25.To address the above observation, Mr. Leung sought to rely on clause 5.2(ii) in the Rental Assignment and contended that P must obtain the Bank’s prior written consent before instituting proceedings. That clause reads: “The Assignor [i.e. P] hereby further undertakes with the Bank that the Assignor will not without the prior written consent of the Bank… take or omit to take any action the taking or omitting of which might result in any alteration or impairment of the Lease… or of any rights created by the Lease…” Ds contended that instituting proceedings is an action which may result in the alteration of rights created by the TAs.

26.I have no hesitation in rejecting such an interpretation given by Ds to clause 5.2(ii). That clause in my view is intended to cover actions (or inactions) by the assignor such as amending the terms of the lease and causing any impairment of the rights under the lease. By instituting proceedings, P is doing the contrary, namely, enforcing the terms of the TAs to sue for rent arrears, thereby protecting rather than impairing the rights and interests of the Bank as well as P in the TAs. Further, clause 5.1(b)(3) is a specific covenant dealing with instituting proceedings; had the parties intended to require prior written consent of the Bank, they would have stipulated that requirement in the clause. In any event, despite everything that has been said on Ds’ behalf on the issue of construction, I find that viewed in the context of all the provisions in the Rental Assignment, Ds’ construction of clause 5.2(ii) is untenable; and in my view, properly construed in context, clause 5.1(b)(3) in law and in fact grants authority to P to institute proceedings to sue on the TAs without the need of any prior notice to the Bank.

27.In view of my findings above[7], I would have found Ds to have failed to show cause against P’s summary judgment application but Ds raised another impediment for P. It was contended by Ds that the Rental Assignment gave rise to an equitable assignment in favour of the Bank and as such P may only sue on the TAs if: (1) the Bank is joined as a party to these proceedings and if the Bank expressly declines to make a claim, P being the assignor can sue[8]; or (2) P can sue in an expressly pleaded representative capacity as trustee and with the consent of the Bank[9].

28.In reply, P accepted that the Rental Assignment gave rise to an equitable assignment but contended that the failure to join the Bank does not render the proceedings a nullity. To support this contention, P relied on Promontoria (Oak) Ltd v Emanuel [2022] 1 WLR 2004, a case in which the defendant, like Ds in the present Actions, argued that the plaintiff as an equitable assignor had “no title to sue” and “could not maintain the action without joining the assignee” (at §§113-114).

29.The English Court of Appeal held (at §117) that the non-joinder of the assignee did not render the assignor’s claim defective, nor could the claim be struck out:

“It is true that if there has been an absolute equitable assignment of a debt, both assignor (as legal owner of the debt) and assignee (as equitable owner) should be joined to the proceedings so that all parties are effectively bound: see Snell's Equity, 34th ed (2020) at para 3-023. But this requirement is only procedural and failure to join the assignee does not make the proceedings a nullity, and the assignee can be joined at a later stage: ibid. Hence in Bexhill [2012] EWCA Civ 1376 the proceedings were not struck out, but remitted to enable an application to join the assignee to be made: see para 68.”

30.P further contended that where no notice of the equitable assignment is given to the debtor, which is accepted by Ds to be the present case[10], the practice of joinder will not be insisted upon. In Phoenix Group Foundation v Harbour Fund II LP [2023] EWCA Civ 36, Snowden LJ expounded (at §91):

“[I]f the debtor has no notice of the assignment and pays the assignor, he will get a good discharge and will be under no liability to the assignee, who will be forced to pursue the assignor for the monies received which will be held on a constructive trust. If, however, the debtor has been given notice of the assignment and disregards it, he will remain liable to pay the assignee: see Brice v Bannister (1878) 3 QBD 569.”[11]

31.P therefore contended that joinder will not be insisted upon because there is no risk of a further claim by the assignee. Where no notice of the assignment was given to the debtor, the debtor can get a good discharge by paying the assignor. The debtor cannot therefore be subject to another claim by the assignee. In support of this contention, P prayed in aid the case of Stocks v Dobson (1853) 4 De GM & G 11 where Turner LJ stated (at 15):

“The debtor is liable, at law, to the assignor of the debt, and at law must pay the assignor if the assignor sues in respect of it. If so, it follows that he may pay without suit. The payment of the debtor to the assignor discharges the debt at law. The assignee has no legal right, and can only sue in the assignor's name. How can he sue if the debt has been paid?”

32.Thus, it was explained in The Law of Personal Property (3rd Ed, 2021) at §22-050:

“As for whether an assignor can initiate proceedings against the obligor, he should be able to do so where the obligor has not been notified of the assignment, since the assignor may in such a case give a good discharge.”

33.P further relied on the case of Timbercorp Finance Pty Ltd. (in liquidation) v FTM Nominees Pty Ltd. & Anor. [2015] VSC 498 which concerned an equitable assignment with no notice given to the debtor. The assignor sued the debtor without joining the assignee. The debtor defended the claim on the basis (same as Ds’ in the present case) that the assignee was not joined. The assignor applied to strike out this defence as being unarguable. The Supreme Court of Victoria agreed (at §27) that the defence should be struck out on the basis that the assignor can give a good discharge (when no notice was given to the debtor):

“[A]n equitable assignor, would be competent to sue without joining the assignee or pleading the assignment. The risk of double recovery, postulated by the defendants, does not arise. Payment to the plaintiff of the amount of the debt, would fully discharge the obligation, enforceable against the assignee. It must follow that the allegations made in paragraphs 263 to 270 of the defence and counterclaim are untenable and should be struck out.”

34.P also drew the Court’s attention to the following provisions in the Rental Assignment:

(a) By Clause 5.1(a), P undertook to “take all necessary steps to procure the due performance by the Lessee [D1] of its obligations under the Lease [the TAs]…”;

(b) By Clause 5.1(b)(3), P undertook to promptly and diligently “institute and maintain all such proceedings as may be necessary or expedient to preserve or protect the interests of the Assignor [i.e. P] and the Bank in the Lease [the TAs]”;

(c) By Clause 5.1(c), P undertook to “procure that the Lessee [D1] shall make payments of rent due or becoming due hereafter to the Bank in reduction of the Secured Indebtedness”;

(d) Clause 7.1 provides: “the Bank shall not be under any obligation or liability thereunder by reason of this Assignment or anything arising therefrom nor shall the Bank be required to … enforce against any Lessee any term or condition of the Lease…”

35.P contended that these clauses make it abundantly clear that the intention of the parties is that P, and P alone, shall take actions, including instituting legal proceedings, where necessary, to recover outstanding rental payments under the TAs. Such clauses demonstrate that any risk of double jeopardy to Ds is simply illusory.

36.On the other hand, Ds contended that the principle that an equitable assignor cannot sue in his own name is well established by the English Court of Appeal in Bexhill UK Limited v Abdul Razzaq [2012] EWCA Civ 1376 at §58:

“When there has been an assignment that takes effect in equity, the general rule is that it is the equitable assignee who has the right to sue, because it is the equitable assignee who is beneficially entitled to the thing in action. The assignor will not be allowed to maintain an action regarding the thing in action unless the assignee is joined as a party to the claim: see Three Rivers DC v Governor and Company of the Bank of England. In the present case this means, on my analysis, that Bexhill, which is the assignor with the legal interest in the Charge and the right to sue on it, could not normally sue Mr Razzaq on the Charge without joining Barclays…”

(Emphasis by this Court underlined)

37.Ds also relied on the case of Charnesh Kapoor v National Westminster Bank plc, Kian Seng Tan [2011] EWCA Civ 1083 where it was stated at §40:

“… There is no good reason of policy or principle for the courts to refuse to recognise the title of the undisputed equitable assignee of part of a debt, and every good reason for the courts to refuse to recognise the bare legal title of the assignor, except where the assignor is a trustee for the assignee and expressly suing as such or the assignee joins in the proceedings.”

38.Ds also cited in support of their contention the case of Three Rivers D.C. v Governor and Company of the Bank of England [1996] QB 292 where it was stated (at pp.307-308, 313):

“… in equity the assignee becomes the owner and controller of the legal chose. He is entitled to sue for the recovery of the chose, but as a matter of practice he will normally be required by the court to join the assignor… An assignor, if the assignment is known, will not be allowed to sue in his own name for himself. He may sue as trustee for the assignee if the assignee so wishes, but in that event he should reveal his representative capacity (R.S.C., Ord. 6, r. 3(1)(a)) and if he attempts to recover for himself, even if, for example, only part of the debt has been assigned, he will be required to join the assignee. (Emphasis by this Court underlined)

… the equitable assignee can be regarded realistically as the person entitled to the assigned chose and is able to sue the debtor on that chose… If, unusually, the assignor sues, he will not be allowed to maintain the action in the absence of the assignee.”

39.D2 further cited the learned author’s comments in The Law of Assignment (3^rd Edn) at §11.86:

“The need for the assignee to be joined to any action brought in respect of the assigned right is now established beyond doubt. It is recognized as a substantive requirement, unless the assignor expressly sues in his representative capacity on behalf of the assignee.”

40.Interestingly, both sides have not cited any authoritative local decisions on this issue of joinder.

41.Having considered the respective submissions by the parties, I should indicate that I am inclined to agree with P’s contention that no joinder is necessary in the present case. It appears to me that some of the cases or authorities cited by Ds either only set out a general rule or were decided in a context where notice of the assignment was actually given to the debtor. I would hesitate to find a mandatory rule to require a joinder of the assignee in every litigation involving an equitable assignment. In any event, it is not necessary for me to rule on this issue, for there is clearly a more straightforward answer provided by P to overcome the impediment posed by Ds. This issue of joinder may be better argued and resolved in another case or at another venue of court in the future.

42.In response to these submissions made by Ds, on a de bene esse basis, P produced at the appeal hearing two summonses for leave to amend its Writ of Summons and Amended Statement of Claim in each of the two Actions so as to expressly plead that these Actions are being brought by P as trustee and/or agent for and on behalf of the Bank pursuant to the Rental Assignment. Counsel for Ds confirmed at the appeal hearing and in their Consolidated Submissions that Ds are neutral to such amendments (save for the question of costs). Given their delay in articulating and raising the locus challenge as aforementioned, Ds simply have no reasonable grounds to oppose the amendments that are sought by P.

43.The two summonses were formally filed by P with the Court on 29 November 2024 seeking leave for the said amendments. In view of the circumstances of the present case, it is only fair for leave to be granted to P and I would make an order in terms of the two summonses. I would also make orders for and consequential to such amendments by P[12] including to grant leave to Ds to make amendments to the D&C, if considered necessary, provided that such amendments by Ds be limited to those which are consequential to the amendments made by P in its Amended Writ of Summons and Re-Amended Statement of Claim. Consistent with the way in which Ds have unhelpfully and belatedly sought to raise the locus issue, neither at the appeal hearing nor in their Consolidated Submissions did Counsel for Ds spell out precisely what consequential amendments they propose to make. But given that Ds’ consequential amendments will be restricted to responding to P’s very limited amendment to plead its representative capacity, I fail to see how Ds’ consequential amendments could affect in any way the decision of this Court in these appeals; and Counsel for Ds never suggested at the hearing or in the Consolidated Submissions that they could do so.[13]

44.Therefore, the Writ of Summons and the Amended Statement of Claim will be amended by P to plead its representative capacity to sue as trustee and/or agent for and on behalf of the Bank. On that basis and in light of my finding above that P was in law and in fact authorized by the Bank to institute these proceedings, the locus contention simply falls away. I therefore find that the locus challenge has no merits.

Equitable set-off?

45.Ds then continued to contend that even if they fail in the locus challenge and therefore fail in opposing the summary judgment, the amounts of the summary judgment should be varied as Ds will raise an equitable set-off and if that is successful, it would not only impact upon the summary judgment amounts but also on the order as to costs of the appeals.

46.Ds submitted that they have an arguable set-off with respect to their counterclaim for the return of the fitting-out deposits, namely $200,000 in HCA 2039/2023 and $500,000 in HCA 2040/2023. In their Consolidated Submissions, Ds contended that the deposits comprise of the $200,000 deposit provided for at §L of the Schedule to each of the TAs for both House A and House B, as well as an additional deposit of $300,000 for House B as set out in a “Side Letter” (at its clause 6).

47.P, however, contended that the counterclaims for these fitting-out deposits have not been properly pleaded and it is trite that the defence of set-off and counterclaim must be specifically pleaded.[14] P contended that there are also inconsistencies within Ds’ versions as to how these deposits came about and Ds’ pleading also lacks the requisite particulars.

48.In their Consolidated Submissions[15], Ds contended that the $200,000 fitting-out deposits were provided for at §L of the Schedule to the TAs. However, as P contended, that is inconsistent with how it was pleaded in the D&C in the two Actions. At §13 of the D&C for HCA 2039/2023 (House A), the $200,000 fitting-out deposit was alleged to have been paid pursuant to an “oral agreement” entered into between a representative of P and D2 on behalf of D1 in or around early September 2020 (when the TAs were actually dated 15 October 2020, some six weeks later). In the D&C for HCA 2040/2023 (House B), it was not even pleaded that there was a separate $200,000 fitting-out deposit nor were any terms pleaded under which such a fitting-out deposit may have to be refunded.[16] Indeed, §L of the Schedule to the TAs was not specifically or at all pleaded in the D&C in both HCA 2039/2023 (House A) and HCA 2040/2023 (House B).

49.Further, the terms of the “oral agreement” regarding the fitting-out deposits were also not pleaded in the D&C in HCA 2039/2023 (House A). Therefore, there is no basis to know whether under the “oral agreement”, the deposit had to be returned to Ds and if so, how and when it had to be returned. It is also unclear whether the terms of the “oral agreement” regarding the deposit were consistent with the terms of the TAs including those of §L of the Schedule. As P contended, not only had Ds failed to plead any basis for a refund, Ds had even failed to plead that P did not refund the deposit.

50.Similarly, there are problems in the pleadings in respect of the $500,000 deposit for HCA 2040/2023 (House B). According to §20.1 of the D&C, there was a written agreement made on 6 April 2024 between P and D1 (“the Side Letter”) in which P provided express consent for D1 to conduct fitting-out. It is quite plain that the date must have been wrongly pleaded to be in 2024, for D1 had already vacated House B by 13 January 2024, the latest.

51.It was also pleaded in §20.2.2 that under the Side Letter, D1 would pay a sum of $300,000 as “Reinstatement Deposit”. Then at §21.1, it was pleaded that pursuant to and in reliance of the Side Letter and the TA, D1 paid a sum of $500,000 to the Plaintiff as fitting out and reinstatement deposit (“the Fitting-Out Deposit”). That again appears to be inconsistent with §20.2 or §20.2.2 for it was never pleaded that the Side Letter contained any terms about any fitting-out deposit or any sum in the amount of $200,000. There is also no indication in the D&C as to why $500,000, and not $300,000, was paid pursuant to the Side Letter and the TA.

52.In their first set of skeleton submissions dated 25 November 2024 that were filed before the appeal hearing, Ds stated at §60(1) that “despite the letter stating HK$300,000, the parties in fact agreed on the figure of HK$500,000”. There is no such pleading in the D&C, and no particulars are given as to when, where and between whom this alleged “agreement” was made.

53.Having considered the matter carefully, I agree with P’s contention and find that the counterclaim for these deposits have not been properly pleaded.

54.In any event, notwithstanding all the submissions made by Ds, I also find that the test for equitable set-off is not satisfied.

55.In Glorigate v Poon Siu Wo, HCA 1176/2014 (unreported and dated 15 April 2015), Deputy High Court Judge B. Chu (as she then was) dismissed an argument of equitable set-off[17]:

“70. … it is also not possible for Ds to rely on the doctrine of equitable set-off. For equitable set-off to operate, the claim and counterclaim must be sufficiently closely connected so that it would be manifestly unjust to enforce one without regard to the other… the first issue to be resolved in that case was whether the plaintiff’s obligation to pay rent was conditional upon the defendant’s compliance with certain clauses of the tenancy agreement.

71. Here, in the Offer Letter, there were no provisions that Ds’ obligation to pay rent was conditional upon there being no illegal structures or no unauthorized additions in the Premises.

72. Having considered the above, I have come to the view that on the present evidence it is not possible for Ds to rely on the doctrine of equitable set-off.”

56.Under the TAs, there is nothing to suggest that Ds’ obligation to pay rent is conditional upon the fitting-out deposits being refunded. In fact, according to Ds’ own pleaded case, it appears that the deposits were paid pursuant to an “oral agreement” or a “Side Letter”, other than the TAs. In any event, I fail to observe any “sufficiently close connection” between Ds’ obligation to pay rent and P’s obligation to refund the fitting-out deposits.

57.I therefore find Ds’ contention on equitable set-off to be without merits.

Conclusion

58.In light of all my findings above, I conclude that Ds have failed to show cause against P’s summary judgment application. I therefore affirm the summary judgment entered by the Master against Ds in these two Actions and his order as to costs of P’s summonses.

59.As the appeal is a hearing de novo[18], I will consider afresh the question of whether the execution of the summary judgment in favour of P should be stayed pending the final disposal of the remaining parts of P’s claim and D1’s counterclaim (if any). In my view, given the huge sums already awarded to P for the rent arrears and noting Ds’ concession that they no longer rely on their counterclaim to resist the summary judgment, I find that there should be no stay of execution of the summary judgment. I should point out that the circumstances prevailing now are quite different from those at the time of the hearing before the Master.

60.I therefore allow P’s appeals and set aside the Stay Order imposed by the Master. In view of all the circumstances of this case[19] and given that P has succeeded in these appeals, I find it fair and just that P be awarded the costs of the appeals. I therefore order that costs of and occasioned by the appeals be summarily assessed on a full indemnity basis[20] and be paid by Ds to P forthwith.

61.For the purpose of summary assessment of costs, I give the following directions:

(a) P do file and serve its statement of costs within 7 days from the date of this decision;

(b) Ds do file and serve a succinct summary of objections of not more than two pages in respect of P’s statement of costs within 7 days thereafter;

(c) P do file and serve a succinct reply of not more than one page to Ds’ summary of objections within 7 days thereafter;

(d) Unless otherwise directed, the summary assessment of costs be conducted by paper disposal.

62.I also make the following orders for and consequential to P’s amendment of the Writ of Summons and the Amended Statement of Claim:

(1) P do file and serve on Ds its Amended Writ of Summons and Re-Amended Statement of Claim in both Actions within 7 days from the date of this decision;

(2) Leave be granted to Ds to make amendments to their D&C in both Actions, if considered appropriate, within 14 days thereafter provided that such amendments be limited to those which are consequential to the amendments made by P in its Amended Writ of Summons and Re-Amended Statement of Claim;

(3) There be liberty to apply, especially in case of dispute as to paragraph (2) above.

Ms Astina Au, instructed by DLA Piper Hong Kong, for the Plaintiff

Mr. Raphael Leung, instructed by Ho & Partners, for the 1^st and 2^nd Defendants